Pezza v. Investors Capital Corp..

767 F.Supp.2d 225

94 Empl. Prac. Dec. P 44,121

31 IER Cases 1694

Paul PEZZA, Plaintiff,

v.INVESTORS CAPITAL CORPORATION, Investors Capital Holdings, Ltd., and Timothy Murphy, Defendants.

Civil Action No. 10–10113–DPW.

United States District Court, D. Massachusetts.

March 1, 2011.

Alan H. Crede, The Law Office of Alan H. Crede, P.C., Boston, MA, for Plaintiff.Guy P. Tully, Jackson Lewis LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK, District Judge.

The enactment last year of the sprawling 2,319 page Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. No. 111–203, 124 Stat. 1376 (2010) (the “Dodd–Frank Act” or the “Act”), imposes, among its many initiatives, the refinement and restriction of what has been restated by the Supreme Court as “a national policy favoring arbitration of claims that parties contract to settle in that manner.” Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)) (internal quotation marks omitted). Of specific concern in this case is Section 922 of the Dodd–Frank Act which amends the whistleblower protection set forth in the Sarbanes–Oxley Corporate and Criminal Fraud Accountability Act of 2002 (the “Sarbanes–Oxley Act”), 18 U.S.C. § 1514A, by adding a new section as follows:

(e)NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES—

(1) WAIVER OF RIGHTS AND REMEDIES.—The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.

(2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.

Dodd–Frank Act, § 922, 124 Stat. at 1848. This case presents the question whether the ban on pre-dispute arbitration agreements imposed by the Dodd–Frank Act regarding Sarbanes–Oxley Act whistleblower protection applies retroactively.

I. BACKGROUND

The plaintiff in this action claims he was wrongfully retaliated against, in violation of the Sarbanes–Oxley Act, after having raised concerns regarding misconduct by the defendants in connection with securities transactions. The defendants assert the threshold contention that the plaintiff's executed employment agreements obligate him to submit such a dispute to arbitration.

After having complied with the administrative claims process before the Department of Labor's Occupational Safety and Health Administration, the plaintiff filed on January 26, 2010 the single count complaint before me, alleging retaliation in violation of the Sarbanes–Oxley Act's whistleblower protection, 18 U.S.C. § 1514A. The defendants raised the obligation to arbitrate as an affirmative defense and moved to compel arbitration and either stay or dismiss this action. On July 21, 2010, while defendants' motion to compel arbitration was under advisement, the Dodd–Frank Act enacted a bar to predispute arbitration agreements for whistleblower claims brought under the Sarbanes–Oxley Act. The plaintiff, who brought this new legislative development to my attention, now contends that the Dodd–Frank Act bar is dispositive of defendants' demand for arbitration. The defendants, for their part, contend the Dodd–Frank Act bar on Sarbanes–Oxley whistleblower arbitration agreements is not retroactive.

II. APPLICABLE LEGAL PRINCIPLES

The Supreme Court has recognized that an “apparent tension” exists between “two seemingly contradictory statements found in [its] decisions concerning the effect of intervening changes in the law.” Landgraf v. USI Film Prods., 511 U.S. 244, 263–64, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994). As a general rule, courts must “apply the law in effect at the time it renders its decision.” Id. at 264, 114 S.Ct. 1483 (quoting Bradley v. Sch. Bd. of Richmond, 416 U.S. 696, 711, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974)). However, because “[r]etroactivity is not favored in the law,” courts should not construe “congressional enactments and administrative rules ... to have retroactive effect unless their language requires this result.” Id. (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988)) (alteration in original).

In an effort to accommodate this tension, the Supreme Court has provided a framework for determining whether a statute should be applied retroactively:

We first look to whether Congress has expressly prescribed the statute's proper reach, and in the absence of language as helpful as that we try to draw a comparably firm conclusion about the temporal reach specifically intended by applying our normal rules of construction. If that effort fails, we ask whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties on the basis of conduct arising before its enactment. If the answer is yes, we then apply the presumption against retroactivity by construing the statute as inapplicable to the event or act in question owing to the absence of a clear indication from Congress that it intended such a result.Fernandez–Vargas v. Gonzales, 548 U.S. 30, 37–38, 126 S.Ct. 2422, 165 L.Ed.2d 323 (2006) (internal quotation marks, citations, and alterations omitted). I will apply this framework in the present case.

III. ANALYSIS

A. Congressional Intent1. As Expressed

The first step of retroactivity analysis asks whether Congress clearly expressed an intent to limit the temporal reach of Section 922 of the Act. Id. It is necessary in answering this question to look at the outset to the precise language of the statute itself. Landgraf, 511 U.S. at 257, 114 S.Ct. 1483 (“Our first question, then, is whether the statutory text on which petitioner relies manifests an intent that the ... Act should be applied to cases that arose and went to trial before its enactment.”).

Nothing in Section 922 of the Act provides an express congressional intent regarding retroactivity. The general language contained in Section 4 of the Act, which provides that “[e]xcept as otherwise specifically provided in this Act or the amendments made by this Act, this Act and such amendments shall take effect 1 day after the date of enactment of this Act,” is not sufficient direction regarding the retroactive application of Section 922. See Landgraf, 511 U.S. at 257, 114 S.Ct. 1483 (“A statement that a statute will become effective on a certain date does not even arguably suggest that it has any application to conduct that occurred at an earlier date.”).¹

2. By Construction

In the absence of clear congressional intent, “normal rules of construction apply” to determine a statute's temporal reach. Lindh v. Murphy, 521 U.S. 320, 326, 117 S.Ct. 2059, 138 L.Ed.2d 481 (1997). For instance, the fact that Congress has explicitly directed that another section of a given statute not be applied in pending cases may be viewed as evidence that Congress intended, at least implicitly, the remainder of the statute to apply thereto. Cf. INS v. St. Cyr, 533 U.S. 289, 318–19, 121 S.Ct. 2271, 150 L.Ed.2d 347 (2001) (denying retroactive application of § 304(b) of the Illegal Immigration Reform and Immigrant Responsibility Act due to “Congress' willingness, in other sections of [this act], to indicate unambiguously its intention to apply specific provisions retroactively.”); Lindh, 521 U.S. at 336, 117 S.Ct. 2059 (refusing to apply amendment to habeas corpus statute retroactively based on the “negative inference drawn from the fact that Congress explicitly made another amendment pertaining to capital offenses applicable to pending cases.”).

Apart from Section 922, the Dodd–Frank Act contains other sections that also restrict the use of predispute arbitration, some of which provide indications regarding congressional intent. Generally speaking, the sections of the Act that restrict predispute arbitration can be divided into three categories: (i) sections applying to future disputes only, or (ii) sections applying to future disputes and arbitration agreements entered into after a certain time period, and (iii) sections for which Congress has not expressed any intent with respect to retroactivity.

The first category—sections applying to future disputes only—includes paragraph (a) of Section 921 of the Act “AUTHORITY TO RESTRICT MANDATORY PRE–DISPUTE ARBITRATION,” which amended Section 15 of the Securities Exchange Act of 1934, 15 U.S.C. § 78 o, by granting to the Securities Exchange Commission (the “Commission”) the authority to restrict mandatory predispute arbitration for customers or clients of any broker, dealer, or municipal securities dealer:

( o ) AUTHORITY TO RESTRICT MANDATORY PREDISPUTE ARBITRATION.-The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.

Dodd–Frank Act, § 921, 124 Stat. at 1841 (emphasis added). Also included in this first category is paragraph (b) of Section 921, which amended Section 205 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b–5, by providing the Commission with the authority to restrict mandatory predispute arbitration for customers or clients of any investment adviser:

(f) AUTHORITY TO RESTRICT MANDATORY PREDISPUTE ARBITRATION.—The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any...